The CNN Greed & Fear Index is one of the best signals I have seen. I have followed it for some time and anytime it gets above 90 to Extreme Greed, a sell off or pull back occurs within one week. This has even been the case in a market manipulated by low interest rates and Federal Reserve massive printing of money. The Greed Index today just jumped over the 90 level, settling at 91. This to me signals a possible reversal in the coming days. Note the chart below.
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The Federal Reserve Chairman Ben Bernanke is beginning to testifying in front of the Joint Economic Committee. In his opening remarks, the head of the central bank has signaled that he shall continue to keep the current quantitative easing program in place. Traders and investors can easily see the decline in the U.S. Dollar Index after his comments were released. Chairman Bernanke warned that reducing the Federal Reserve’s efforts to keep borrowing rates low would carry a substantial risk of slowing or ending the economic recovery. This means that he will keep interest rates at zero percent and continue to buy $85 billion a month worth of mortgage backed securities and U.S. Treasuries for the foreseeable future.
Large financial stocks are soaring higher after the news. Leading stocks such as J.P. Morgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS), and BlackRock Inc (NYSE:BLK) have all moved sharply higher leading the rally in the major stock indexes today.
Jamie Dimon let his ego get the best of him and it caused a major error in judgement. Often times, ego is the downfall of some of the greatest men in history. Word surfaced today that Jamie Dimon would keep his head directors role along with the CEO title at JPMorgan Chase & Co. (NYSE:JPM). The vote was tight but ultimately he succeeded. Word has it that Jamie Dimon threatened to quit if the head director role was taken away from him.
What Was The Critical Error?
He should have let the company name another director as head. Why? He would enshrined himself as one of the greatest leaders of all time through the financial crisis and beyond. If he let the directors position go, any negatives the company experienced in the future would be blamed partially on him not being in that leadership role. If the company continues to have success, it would still be looked at as his company as the CEO.
Ultimately, he would have insulated himself slightly by allowing another person to take his place as director. By staying in the position, everything that happens will be under an even closer microscope with his head on the chopping block. This was a simple ego move my Jamie Dimon with no real thought. It will be an error in judgement he will likely regret in the years to come.
As we all know, almost every central bank in the world is printing money to boost exports and support asset prices in the stock market. To their credit, the money printing idea has worked as markets around the world have been rallying. Japan is now the most aggressive money printing country. The Bank of Japan (BOJ) said that they would put $1.4 trillion into the economy over the next two years. The Nikkei 225 Index (Japanese stock market) has gained nearly 7,000 points or 80.0 percent since October 2012. This rally in the USD/JPY, and the Nikkei 225 Index has been parabolic and shows the power of money printing or the devaluing of the currency.
At this time, the major stock indexes around the world seem to be trading higher when the Japanese Yen declines against the U.S. Dollar. Traders can simply look at the chart below and see how the S&P SPDR 500 Trust (black line) and the USD/JPY (green line) trade higher together. The red line is the SPDR Gold Shares which is trading inverse to the USD/JPY. The bottom line, if the Japanese Yen starts to strengthen against the U.S. Dollar the current rally in stocks could come to an abrupt end.